Asia’s population crunch challenges economy

When a group of foreigners visited the Bank of Japan last year to discuss monetary policy, they reportedly left with the message that the bank would not be loosening up until the country’s women did the same in the bedroom.

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But Japan has long been the canary in the mine for judging how population change affects growth and, now that it is back on the radar screen in financial markets, the crucial question is whether a country with a shrinking population can pull off an economic recovery.

It is easy to play down the anti-population growth sentiment in Singapore, due to its size, but the fertility slump behind the government’s new immigration push is being played out in more important countries from South Korea to Thailand, where the capacity to increase workforce participation and productivity is much more crucial to the region’s outlook.

Meanwhile, the 3.5 million fall in the size of the Chinese workforce last year – some years ahead of forecasts – underlined the unprecedented demographic crunch the country faces. The initial exhaustion of the pool of cheap rural workers has almost coincided with the shrinking of the workforce and ageing of the population.

But Peking University finance professor, Michael Pettis, is sceptical, arguing that the rise in the dependency ratio just starting in China will increase pressure on the government to come up with difficult productivity-increasing reforms to meet expectations of higher living standards.

These changes have big implications for foreign companies breaking into Asia because they suggest very different growth trajectories for individual countries and different domestic economic priorities.

And just to give Singapore’s NIMBYs a break, they stood out for having a very Confucian sense that the elderly and their families should split the cost of aged care when some other Asian citizens are looking more to government and employers.